Peloton Interactive (PTON 2.62%) has an image problem: Its connected fitness equipment is becoming a major health hazard to television characters. For the second time in as many months, a major TV show will have a main character suffer a heart attack while using one of Peloton's exercise machines.
The Showtime program Billions has the character Mike "Wags" Wagner suffer a heart attack while riding a Peloton Bike, which follows last month's demise of another primary character on HBO Max's reboot of Sex and the City, when Mr. Big, AKA Carrie Bradshaw's husband, suffers a heart attack and dies after taking his 1,000th ride on a Peloton Bike.
Image source: Getty Images.
Though it points to lazy writing by the television industry -- Wags even references the previous incident, saying "I'm not going out like Mr. Big!" -- it's an occurrence that shouldn't have an effect on the company or impact its stock. Yet it does.
Peloton feels compelled to address these plot conveniences by putting out statements saying it didn't authorize the use of its brand or equipment, and the last time this happened, the equipment maker's stock fell by 5%. It also puts the fitness guru in a bad light because it comes at a time when it has other, real problems to contend with.
Serious as a heart attack
Peloton admits it badly misjudged the effect the reopening of the economy following the lockdown phase of the pandemic would have on its business.
Despite reassuring investors that its sales would not be dramatically impacted by the availability of out-of-home fitness and entertainment options becoming available to consumers, Peloton's fiscal second-quarter earnings report shows the bottom is actually still dropping out.
Although the connected fitness leader was still growing, with revenue rising 7.5% to $1.14 billion (slightly improved over the 6% growth recorded in the first quarter), it's a far cry from the 124% gain in last year's second quarter (and the 232% gain in the year ago first quarter).
We still don't know what engagement was like in the period, since it was only providing a preliminary update, but engagement fell 16% following a 20% decline in the fourth quarter.
Management contends the "significant corrective actions" it took after the surprise deterioration in its business are having an effect, but that's all the more reason it doesn't need to be seen in a bad light on TV.
It already had to contend with a CNBC report it was shutting down production of its Bike to address the shortfall fall in demand, something it denied, but it did say it was considering firing a bunch of people. The fact that the company previously said mass firings would be the "last lever" it would pull and it's now on the table is ominous. It's also why Peloton's stock plunged 24% in one day.
A real-world problem
Peloton is running the risk of turning into a running joke on TV, which is never a good look. Much like any character who appeared in a red shirt on the TV series Star Trek meant they were doomed to die, the connected fitness equipment maker could fill the small screen with foreboding when one of its exercise bikes or treadmills makes an appearance: Which character will be offed after sitting on it?
But investors should be more worried about Peloton's slowing business and its difficulty in turning a profit. It had to cut prices because it has a luxury goods image ($4,000 stationary bikes tend to do that), which will make it even more difficult to achieve, even as it faces rising competition from Nautilus, Lululemon Athletica, and others
It's absurd that what happens on a fake TV show can hurt a real-world business, but with Peloton's stock down 84% from the highs hit a year ago, investors might want to consider how much more value the connected fitness equipment will kill off from its shares before the bottom is hit.
